Zakirov v Newmans Solicitors

This is the assessment under Section 70 of the Solicitors Act 1974 of a bill of costs rendered by the Defendant to the Claimant on 13 August 2010. The bill totals £12,927.69, including disbursements and VAT.

On 10 February 2012 I handed down judgment on the disputed terms of the Defendant’s contract of retainer with the Claimant. That judgment followed three days of evidence, followed by written submissions. I had to decide between two wholly incompatible versions of events, in particular over the period between 25 May and the beginning of September 2010.

Among my findings were that extensive allegations of forgery and dishonesty made by the Claimant against Ms Saira Babar, one of two partners in the Defendant firm (which if proved would have been likely to destroy her professional standing and her livelihood) had no foundation in fact. They included allegations to the effect that Ms Babar made handwritten changes to a retainer document after signature, to include additional fees of which the Claimant had no knowledge; that she compounded this fraud by purporting to send an engrossed version to the Claimant without actually doing so; and that she manufactured false file records to support her case.

My conclusion was that the detailed account of events given by the Defendant and the Defendant’s witnesses was in every respect accurate, whereas the Claimant’s account and that of his witness, Ms Svetlana Sartayeva, were not.

On 31 May 2012, the court approved a consent order (sealed on 6 June) settling the issue of the amount due to the Defendant and providing that the Claimant pay the Defendant’s costs. This judgment addresses four matters which remain disputed. They are whether those costs should be paid on the standard or indemnity basis; whether the Defendant is to be regarded as litigant in person, so that the costs “cap” set by CPR 48.6(2) applies; whether Ms Babar is to be classed as a grade A fee earner for hourly rate purposes; and whether the Defendant’s rates are to be assessed with reference to Central London or Surrey rates.

On the matter of indemnity basis costs, my conclusions in this judgment are based on the findings in my judgment of 10 February 2012 and should be read accordingly. I shall adopt, for ease of reference, some of the terms I coined in that earlier judgment.

Mr Williams for the Claimant refers to Excelsior Commercial & Industrial Holdings v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. Lord Woolf CJ did not in that case set guidelines for awarding costs on the indemnity basis, but held (at paragraph 19) that the normal order for costs was to be on the standard basis. For the indemnity basis there must be some conduct or some circumstance which takes the case out of the norm.

Mr Williams submits that Lord Woolf’s approach appears to have been to consider whether there was some feature in the litigation which made it unjust to impose the proportionality requirement which does not apply on the indemnity basis.

Mr Williams also refers to Kiam v MGN Ltd (No 2) [2002] 2 All ER 242 (CA), in which Simon Brown LJ (at paragraph 12) observed that in general the indemnity basis would be appropriate where there was conduct which was ‘unreasonable to a high degree’ and not merely ‘wrong or misguided in hindsight’, and Digicel (St. Lucia) v Cable & Wireless [2010] EWHC 888 (Ch), in which Morgan J stated (at paragraph 28):

In the present case, submits Mr Williams, the Claimant’s case was (on the balance of probabilities) rejected and the Defendant vindicated. It does not follow from this that the Claimant acted unreasonably, still less that he did so to a high degree. In the professional judgment of both the Claimant’s solicitors and counsel, there were reasonable grounds on which to allege wrongdoing against the Defendant. While dismissing those allegations, the judgment of the court did not suggest that the case which had been made against the Defendant was an irresponsible or improper one.

The Claimant’s case is that he came before the court in good faith, telling the truth as he believed it to be. The failure of his case on the civil standard of proof, enhanced as it is where serious wrongdoing is alleged, does not mean that it is right for his conduct to stigmatised by an indemnity basis costs order.

Nor, submits Mr Williams, can it be said that this is a case where justice demands that the requirement of proportionality be disapplied. When considering whether the costs claimed appear disproportionate the court will give full weight to the seriousness of the issues raised as to the Defendant’s professional conduct. However the court may conclude that the costs being claimed in this case appeared disproportionate even to those issues. In that event a test of necessity should be applied.

Mr Williams refers me to estimates of the Defendant’s total costs of the assessment, totalling £145,848 without VAT. That includes profit costs of £118,619. He describes this total as ‘staggering’ for an assessment in which the disputed events occurred over a short period and disclosure and witness evidence were quite limited. This he says should have been a case where there was relatively modest preparatory work, with most of the expense resulting from the three day trial: an experienced litigation firm in the Defendant’s locality might have managed the case within a total budget of about £50,000.

In contrast, the Claimant’s City solicitor’s profit costs, notwithstanding having the carriage of the case for a non-English speaking client, were £44,082, 37% of the Defendant’s. Almost a third of his total costs related to counsel (£23,125), reflecting the dominance of the trial.

Mr Williams submits that Ms Babar’s approach to the litigation was more intense than that of an independent solicitor, that she has delegated no work at all and that costs are likely to have been further increased by her lack of litigation experience. He contrasts 201 hours spent on this case by the Claimant’s solicitors, 181 hours by grade C staff and 18.5 hours by grade A.

Given the very real concerns as to the quantum of the Defendant’s costs this is, submits Mr Williams, not a case where it would be right for the court to deprive itself of the ability to apply a test of proportionality.

Mr Mallalieu for the Defendant agrees that an order for indemnity basis costs may be appropriate in circumstances where the facts of the case and/or the conduct of the parties is such as to take the situation away from the norm. However he submits that this case is far from the norm.

The full potential amount actually in dispute here was £7,763.00 and in reality probably closer to £5,000. The costs of that dispute, however assessed, will be many times that amount because of the unusual nature of the Claimant’s allegations and the method in which he chose to present those allegations. This was not a dispute about £5,000 or £7,000, or even the detailed assessment of the Defendant’s costs (which was agreed). Rather, it was an attempt, based on untruthful evidence, to have a practising solicitor found to be dishonest, with all the potential consequences for her career.

The key issue, says Mr Mallalieu, was whether Ms Babar was telling the truth or whether the Claimant and Ms Sartayeva were. Mr Williams, at the outset of the hearing, stated that this was not one of those cases where the court might be able to conclude that both were giving truthful and honest accounts. One side was not telling the truth. That side, submits Mr Mallalieu, was the Claimant’s.

The court found the Claimant’s (and Ms Sartayeva’s) evidence on the key issues not to be credible. They had come to court, says Mr Mallalieu, to give false evidence on oath for the purpose of pursuing their own aims against the Defendant.

This was a lengthy trial, split over two hearings over four months, featuring extensive cross examination of five witnesses. This case is far out of the norm because of the Claimant’s untruthful evidence and his conduct of the case.

Further, the conduct of the case by the Claimant generally was unsatisfactory. Notwithstanding detailed case management orders the Claimant produced key evidence for the first time at the hearing, including photocopies of text messages and notes purporting to relate to meetings with other solicitors. In contrast the Defendant, having been forced to contest unjustified allegations of dishonesty, made offers to settle in March and June 2011 both of which, if accepted, would have achieved a better outcome for the Defendant at much less cost.

This is a case in which the Defendant took on, honestly and in good faith, what must have seems a fairly routine task for a client on agreed standard terms. Rather than pay what was agreed the Claimant preferred to make wholly unfounded accusations of fraud and to characterise her openly as unfit to practice. The potential consequences for the Defendant, and Ms Babar in particular, were catastrophic.

In my judgment of 10 February 2012 I described the Defendant’s account of events as wholly truthful as well as accurate. It was not then necessary for me to comment in terms upon the truthfulness of the Claimant or his witness. It is now necessary, because it has a bearing upon whether costs should be awarded on the indemnity basis. Because it is necessary I must state my conclusion that neither the Claimant nor Ms Sartayeva gave their evidence in good faith. These are my reasons for saying so.

This was not a case capable of resolution solely by preferring one party’s evidence to another’s. Mr Williams’s preliminary observation to that effect, now relied upon by his opponent, conceded nothing that is not obvious and was entirely apt to a trial of factual issues in which the honesty of all witnesses was challenged. The nature of and the disparities in the parties’ evidence (in particular as to the events of 26 May 2010) is not capable of explanation by a disparity in recollection. One party, and that party’s supporting witnesses, had to be less than completely truthful. As Mr Mallalieu submits, that party was the Claimant.

By way of illustration I refer to some of my findings. The Claimant retained the (superseded) first retainer document, which he had agreed to destroy. He subsequently relied upon that document in support of his contention that the second retainer document, as amended in handwriting (which he had persuaded the Defendant to accept as a basis for starting work immediately) was a forgery. He also received the engrossed third retainer document and Ms Sartayeva on his behalf led the Defendant to understand that the third retainer document had been received and approved by him. Subsequently he denied receiving it. There are other examples, but I need not labour the point.

If I were able to accept that the Claimant and his witness were honestly mistaken about the many disputed matters of fact in this case I would still have had to conclude that they were willing, when confronted with documentary and witness evidence showing that their recollection of events was incorrect to a quite remarkable degree, to accuse the Defendant of wholesale forgery and dishonesty rather than admit that they had been mistaken. I would also have had to conclude that they attempted (as they did) to improve their evidence under cross-examination to the same end, rather than simply telling the truth as they recalled it. All of that in order to achieve a victory over an amount of money that (given the Claimant’s apparent means) can fairly be described as insignificant to the Claimant.

Even on that basis this case would still be well outside the norm and to describe the Claimant’s conduct as unreasonable to a significant degree would still be entirely appropriate. It is not possible to confine the consequences of that conduct to particular issues, evidence or hearings. It tainted the entirety of the application.

I should say that I do not entirely agree with Mr Williams’ interpretation of Woolf LJ’s observations in Excelsior. It seems to me that the learned judge was doing no more than providing, as an example of one of the ‘infinite variety of situations’ (paragraph 32) in which an indemnity basis order might be appropriate, a case in which the parties might not be expected to conduct litigation in a proportionate manner. He was not offering that as a general test.

If it were such a test, I would remain of the same view. I accept that the Defendant’s costs are very substantial. However that is not nearly so much to the point as is the conduct of the Claimant and the Defendant’s costs will in any event be subject to a test of reasonableness. Nor are comparisons between the parties’ costs really to the point. Mr Mallalieu is right to say that the Claimant’s conduct turned this into an exceptional and expensive dispute. It does not lie with the Claimant to complain that the Defendant disproportionately invested much more in truthfully preserving her career than he was willing to invest in untruthfully attempting to destroy it.

There could not be a clearer case for ordering costs to be paid on the indemnity basis and I shall so order.

Mr Williams’s skeleton argument helpfully summarises the relevant law in these terms:

Mr Williams submits that CPR 48.6(6) states unambiguously that solicitors acting for themselves are to be treated like any other litigants in person. A practice direction cannot carve out from this rule an exception which is not anticipated in the rule itself. It follows that the practice direction is ultra vires, and that Malkinson v Trim was decided per incuriam. The effectiveness of the practice direction was conceded in that case (paragraph 19).

The vires of the practice direction has been challenged since Malkinson v Trim, in Boyd & Hutchinson v Turner [2003] 3 Costs LR 258 (ChD), paragraph 22), but in that latter case, Patten J (as he was then) found that the solicitor litigant had not been practising at the relevant time, and therefore preferred not to decide the vires point on a necessarily obiter basis.

Mr Williams submits that in isolation, CPR 48.6(6)(b) overrides the London & Scottish case and treats solicitors as litigants in person come what may. This is stated in terms in both the Malkinson and Boyd cases at paragraphs 19 and 22 respectively. The only question is then whether a practice direction is so potent as to override this express provision, which otherwise has the force of law as secondary legislation.

Mr Williams further submits that it is clear that a practice direction can have no such potency. The relevant authorities are referred to by Dyson LJ in Leigh v Michelin Tyre [2004] 1 WLR 846 (CA) (at paragraphs 19 to 21):

In U v Liverpool CC [2005] 1 WLR 2657 (CA), Brooke LJ cited these cases before holding a provision in the Costs Practice Direction ultra vires, adding (at paragraph 48):

Similarly in Floyd v S [2010] 5 Costs LR 739 (QBD), [28], Cox J stated that while practice directions may repeat or summarise a provision in secondary legislation, ‘they cannot amend or vary it.’

The Claimant’s case is that the CPR reverses the rule in London Scottish Benefit Society v Chorley. It is not in any sense ‘open-textured’: as Patten J observed in Boyd & Hutchinson v Turner, it unequivocally identifies every solicitor representing himself as a litigant in person. It does not delegate any authority to the practice direction. The authorities responsible for making practice directions have no power to amend it and their attempt to do so fails. The Defendant is accordingly a litigant in person, and the ‘two-thirds limit’ set by CPR 48.6(2) will therefore apply to its costs.

This analysis is contrary to the conclusion in Malkinson v Trim. However the authority of the practice direction went unchallenged in that case, which was decided before Leigh v Michelin focused the attention of practitioners in this area on the limitations of practice directions. The point is therefore open for decision here: R (Kadhim) v Brent LBC [2001] QB 955 (CA) (paragraphs 20-39). Patten J accepted that the point was open, notwithstanding Malkinson v Trim, in Boyd v Hutchinson.

Mr Mallalieu’s submissions in response are these. The Defendant in this case was Newmans Solicitors, a firm with two partners. The firm represented itself. No solicitor acted in person.

CPD 52.5 cannot, and does not purport to, change rule CPR 48.6. It does however provide essential guidance as to its interpretation. That guidance is almost certainly based on the accepted understanding of and intention to preserve the position pre CPR, as established by London Scottish Benefit Society v Chorley: “… when a solicitor brings or defends an action in person, he is entitled to the same costs as an ordinary litigant appearing by a solicitor, subject to this restriction, that no costs which are really unnecessary can be recovered.”

That that principle survives the introduction of the CPR was expressly confirmed by the Court of Appeal’s decision in Malkinson v Trim. The point is simply one of interpretation, and the correct interpretation of the CPR 48.6, in the light of CPD 52.5, is summarised by Chadwick LJ (at paragraph 22):

Mr William’s interpretation of CPR 48.6 (6)(b) as applying to all solicitors in all circumstances, says Mr Mallalieu, is one interpretation, but not the only one. The interpretation offered by Chadwick LJ is not per incuriam: it is the correct interpretation as well as the generally accepted interpretation and should be applied.

Mr Williams’ submission depends upon the proposition that CPR 48.6 (6)(b) is so unambiguous in its application as to render CPD 52.5 wrong and irrelevant. I respectfully disagree. I share Mr Mallalieu’s view that the rule is open to more than one interpretation.

CPR 48.6(6)(b) does not define ‘litigant in person’. It does provide that the term includes ‘…a barrister, solicitor, solicitor’s employee, manager of a body recognised under section 9 of the Administration of Justice Act 1985 or a person who, for the purposes of the Legal Services Act 2007, is an authorised person in relation to an activity which constitutes the conduct of litigation (within the meaning of that Act) who is acting for himself’.

I do not accept (as I think Mr Williams suggested) that a solicitor will invariably appear on the court record in the name of his firm. I have assessed the costs of a solicitor who acted for herself as a litigant in person, appearing on the court record in her own name and using her own address, whilst the firm in which she was a partner acted for another party to the same action.

The Claimant’s position is that that solicitor would have been ‘acting for herself’ under CPR 48.6(6)(b) whether (as was the case) she appeared on the court record in her own name or (as was not the case) she was represented on the court record by the firm in which she was a partner. I do not agree. Mr Mallalieu seems to me to be correct in distinguishing, for these purposes, between ‘a solicitor’ on the court record in his own name and a firm on the court record in the firm’s name.

Any litigant ‘acting for himself’ (and so on the court record in his own name) is a litigant in person and his costs are ‘capped’ by CPR 48.6(2). If a firm of solicitors is on the court record as representing him, he is not and they are not. I see no good reason to suppose that CPR 48.6(6)(b) is intended to put a solicitor represented by his firm at a disadvantage compared to any other litigant represented by his firm. The reference to a (single) ‘solicitor…acting for himself’ suggests that CPR 48.6(6)(b) is intended to address the position of a solicitor on the court record in his own name, like any other litigant in person.

The distinction between a solicitor acting on his own behalf and a solicitor represented by his firm is not merely hypothetical, nor confined to procedural matters. For example a partnership of solicitors, if sued, will normally, by virtue of section 5A of Practice Direction 7A, be sued and defend in the name of the firm. However that name will represent the partners in the firm at the time the cause of action accrued. If the same firm of solicitors appears on the court record for the defendants, some of the partners in the firm as currently constituted may be defendants and some not.

It would seem to follow, on the Claimant’s interpretation of the rule, that the defendant partners would be litigants in person if no there have been no changes in the partnership since the cause of action accrued. If there have been changes, then any retired partners would not be litigants in person. Continuing partners would be litigants in person unless any new partners have joined, in which case (being represented by someone in addition to themselves) there is room for argument about whether they are or not. If they are then, unlike the former partners, their recoverable costs will be capped by CPR 48.6(2).

My conclusion is that the application of the rule is meant to be simpler, and more obviously fair, than that. A solicitor is a litigant in person, like any other litigant in person, if he is on the court record as acting for himself. If the record shows that he is represented by a firm of solicitors, he is not. That is the case whether or not he is a partner in or employee of the firm on the court record.

I respectfully agree with Chadwick LJ’s interpretation, which was not per incuriam. The Costs Practice Direction does no more than clarify the position by pointing out the significance of the words ‘acting for himself’ in CPR 48.6(6)(b).

The Defendant claims for Ms Babar’s work £317 per hour, being the Central London Summary Assessment guideline Grade A rate for 2010.

The Claimant submits that Ms Babar is not a grade A solicitor. Whatever she may be able to charge for residential conveyancing, she cannot charge for litigation. It is no answer to say that the hourly rate she is claiming is that which she forewent by spending time on this case rather than conveyancing. Even if that is correct, she should have mitigated this loss by appointing litigation solicitors (who would have taken far less time, and would have been able to delegate). Further, were Ms Babar to assert that she turned work away because of this case (rather than working extra hours to accommodate it), then that would need to be evidenced and strictly proved.

The Claimant submits that given her inexperience in litigation, Ms Babar should be treated as a ‘National 1’ grade C solicitor throughout. Should she be awarded a higher rate, the Claimant will contend that huge amounts of the work performed by her should have been delegated to grade C staff in any event.

The Defendant subscribes to a serviced office facility in Mayfair. No member of staff is permanently employed from that facility, which hosts a large number of other businesses. The Defendant’s main office is in Horley. Ms Babar lives in Horley, has claimed for travel time from Horley and almost all correspondence has emanated from the Horley office.

Accordingly, The Claimant submits that the Defendant’s costs should be assessed with reference to the ‘National 1’ guidelines, which include Reigate and the other ‘Gatwick towns’ such as Horley.

The Defendant submits that the correct approach for the court to adopt where a firm of solicitors has acted for itself is the ‘broad brush’ approach identified by Patten J at paragraph 19 of Boyd & Hutchinson v Joseph. The court should assume that a practising solicitor or firm of solicitors acting for itself would have hired out its services to clients during the relevant period. The solicitor is to be compensated for the professional time spent on the case.

Ms Babar’s hourly rate in 2010 (as agreed with the Claimant) was £275 per hour during normal office hours and £500 outside those hours, with her assistant charged at £250 per hour. That has been established by her evidence.

Ms Babar, who qualified in 2003, is not a litigation solicitor and, as such does not fit naturally within the bandings provided by the summary assessment guideline rates. It would be wrong, says The Defendant, to seek to fix the hourly rate here by reference to the sort of approach which would have been adopted had the Defendant instead instructed a litigation firm of solicitors to represent it.

The location of the Defendant’s offices is not the issue. The issue is that Ms Babar has devoted time that she would otherwise have profitably have devoted to fee earning work as a partner for the Defendant, time for which she would have charged an inflation-increased equivalent of the 2010 rates of £275 and £500 per hour, depending on when the work was done. To achieve a fair broad brush approximation of that, the Defendant has used the Grade A Central London rate of £317 per hour. The Defendant submits that this is a reasonable guide to the value of the services provided without indulging in the sort of detailed examination of a solicitor’s practice which the court has said need not take place.

The Defendant also points to the Claimant’s approach to the case - to instruct solicitors in a City of London firm. An alternative might be to consider who the Defendant would have been entitled to instruct had it chosen not to conduct this case itself. Given the important nature of the allegations and their potential impact both on the Defendant and Ms Babar, The Defendant submits that it would have been entitled to instruct a partner in a London firm with specialist expertise in professional conduct issues. The rates charged would have made the rates claimed by her ‘seem like a bargain’.

I accept The Defendant’s submissions. The correct approach is summarised by Patten J in Boyd & Hutchinson v Joseph at paragraph 19:

This approach did not help Ms Joseph in relation to a period over which she no professional indemnity insurance and so could not demonstrate that she had used up time in litigation during which she would otherwise have practised as a solicitor for reward. Ms Babar is in no such difficulty. I have heard sufficient evidence as to the nature of her practice to be satisfied that she passes the Boyd & Hutchinson v Joseph test without difficulty. She should be compensated for time reasonably spent by her on the litigation at a rate that reflects what she would have earned in practice had she not been doing so. The guideline rates really have no bearing.

My conclusion is that Ms Babar should receive £275 per hour, which her evidence has established as her standard hourly rate. I am unable to accept the higher composite rate for which she contends to reflect an element of work outside office hours. Her evidence was that she prefers to keep to normal working hours – hence the very high rate for working outside them - and she should, by and large, have been able to manage this litigation on that basis. Nor have I heard any evidence to justify the inflation-adjusted rate for which The Defendant contends.

It would not be right for me to conclude that Ms Babar should have instructed external litigation solicitors. Because the allegations made against her were of the most serious kind and were pursued aggressively, I agree with Mr Mallalieu’s observation that suitable solicitors may well have charged a higher hourly rate than Ms Babar; it is reasonable that Ms Babar preferred to handle matters herself; and there is no force in the suggestion that this was a suitable case for a grade C solicitor to defend. It clearly was not.

It may be that, notwithstanding the sensitivity of the matter, Ms Babar undertook some tasks that might reasonably fall to be delegated to less senior staff. Similarly it may be that, due to her inexperience, some of Ms Babar’s time is irrecoverable on the basis that it exceeds what would normally reasonably be spend on litigation. Those are matters for detailed assessment, and have yet to be tested.

In summary, I find that the Claimant should pay the Defendant’s costs on an indemnity basis, the Defendant is not a litigant in person and Ms Babar should receive an hourly rate of £275.